As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the New Jersey Society of CPAs, Mr. Allison, with the firm of Holman Frenia Allison, P.C. entered into a settlement agreement under the Joint Ethics Enforcement Program, effective January 3, 2018.
Information came to the attention of the Ethics Charging Authority (ECA) (comprised of the AICPA Professional Ethics Executive Committee and the New Jersey Society of CPAs Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Allison’s performance of professional services on the audit of the financial statements of a governmental entity as of and for the year ended December 31, 2012.
The ECA reviewed the findings of the Department of Health & Human Services, Office of Inspector General and Mr. Allison’s responses to such findings as well as other relevant documents Mr. Allison submitted to support his responses. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA and New Jersey Society of CPAs’ codes of professional conduct as follows:
Rule 201 – General Standards B. Due Professional Care
The auditor opined on the Schedule of Expenditures of Federal Awards in both the original and revised auditor’s reports over the financial statements and in the original and revised Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by OMB Circular A-133.
Rule 202 – Compliance with Standards
- The auditor failed to express an adverse opinion in the original and revised auditor’s reports on the 2011 financial information included in the reporting package that failed to comply with Generally Accepted Accounting Principles. (AU-C §700.44)
- The first paragraphs of the original and revised auditor’s reports indicate that the statement of revenue-regulatory basis and statement of expenditures-regulatory basis are comparative but the statements present only 2012. Furthermore, the auditors’ reports identify that the notes to the financial statements are for 2012 only but they are comparative. (AU-C §700.44-.47)
- The original and revised notes to the financial statements disclose subsequent events that occurred after the date of the auditor’s report. (AU-C §855)
- The auditor failed to appropriately dual date and/or re-date the reissued financial statements and compliance reports when additional work over major federal programs was performed. (AU-C §560)
- The original and revised reports on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards failed to include descriptions of departures from the standard auditor’s reports. (AICPA Audit Guide – Government Auditing Standards and Circular A-133 Audits (“AAG-SLA”) par. 4.54)
- The auditor originally failed to identify and test all major federal programs. (AAG-SLA Chapter 8, OMB Circular A-133 §.__520)
In consideration of the ECA forgoing further investigation of Mr. Allison’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Allison agreed as follows:
a. To waive his rights to further investigation of this matter in accordance with the Joint Ethics Enforcement Program (JEEP) Manual of Procedures.
b. To waive his rights to a hearing under AICPA bylaws section 7.4 and the bylaws Article I, Section 8.
c. To neither admit nor deny the above specified charges.
d. To his suspension from membership in the AICPA and the for a period of one year from the effective date of this agreement. During the period of suspension, he is prohibited from representing himself as a member of the AICPA and the and from using AICPA certificates or credentials, if any.
e. To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.
f. To complete the 67 hours of continuing professional education (CPE) courses (Fundamentals for Performing a Single Audit Under the Uniform Guidance for Federal Awards; Alternatives to GAAP: Using Special Purpose Frameworks; Audits of State and Local Governments: What You Need to Know; Yellow Book: Government Auditing Standards; Studies on Single Audit and Yellow Book Deficiencies; Audit Workpapers: Documenting and Reviewing Fieldwork; Upcoming Peer Review: Is Your Firm Ready) within 18 months of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
g. To comply with directive e. above, Mr. Allison agrees to hire an outside party, acceptable to the to perform a pre-issuance review of the reports, financial statements, and working papers on five engagements performed by him and selected by the ECA for one year from the date the reviewer has been approved by the . He must submit the names of the chosen reviewers to the for approval no later than 30 days after the effective date of this agreement. Also, no later than 30 days after the effective date of this agreement, he must submit a list to the ECA of the highest level of engagements (audits, reviews and compilations with note disclosures) on which he expects to issue reports in the upcoming 12 months from which the five engagements subject to pre-issuance review will be selected.
He agrees to permit the outside party to report quarterly to the ECA on his progress in complying with this agreement as stated herein to comply with professional standards. The first report is due 120 days after the reviewer has been approved by the with subsequent reports due every 90 days thereafter. If none of the engagements selected for pre-issuance review were performed during a reporting period, he agrees to inform the ECA of such. He agrees to have this pre-issuance review performed at his expense. The ECA has the right to extend the period of time and number of engagements subject to pre-issuance review if there are deficiencies.
He agrees to inform the ECA of any changes in the composition of his practice, changes in his role or if he has not performed any audits, reviews, and/or compilations with note disclosures during the period. If his practice changes and he is no longer involved with such audits, reviews, and compilations with note disclosures, no longer acts in a supervisory capacity on such engagements or he has not performed such engagements during the above specified period, he must inform the ECA of this change and the ECA may require that he attest every six months for three years as to the nature of his practice. If, during the three-year attestation period he returns to performing such engagements, he must inform the ECA of this change and undergo the required pre-issuance reviews.
h. To further comply with directive e. above, Mr. Allison agrees to submit six months after completion of the CPE and , a list of the highest level (audits, reviews, and compilations with note disclosures) of engagements that he performed in the six-month period following the date he completed the CPE and .
The ECA will select one of these engagements for review. He will be informed of this selection and will be asked to submit information to include a copy of his report, the financial statements, and working papers related to that engagement for review by the ECA. The ECA may extend the period to select an engagement to ensure a suitable selection is available. A peer review undergone by his firm would not exempt him from this requirement.
He agrees to inform the ECA of any changes in the composition of his practice, changes in his role or if he has not performed any audits, reviews, and/or compilations with note disclosures until a suitable work product is selected for review. If his practice changes and he is no longer involved with audits, reviews, and/or compilations with note disclosures, no longer acts in a supervisory capacity on such engagements or he has not performed such engagements during the above specified period, he must inform the ECA of this change and the ECA may require that he attest every six months for three years as to the nature of his practice. If, during the three-year attestation period he returns to performing such engagements, he must inform the ECA of this change and the ECA will select a suitable work product for review.
After an initial review of such report, financial statements, and working papers, the ECA may decide he has substantially complied with professional standards and close this matter. Or, the ECA may decide that an ethics investigation of the engagement he submitted is warranted. If, at the conclusion of the investigation, the ECA finds that professional standards have in fact been violated, the ECA may refer the matter to the AICPA joint trial board for a hearing or take such other action as it deems appropriate.
i. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the until he has completed all directives in this agreement. This restriction will be communicated to those responsible for appointments to such committees. In addition, if he applies to join any other committee of the AICPA or the , he must inform those responsible for such appointments of the results of this ethics investigation. This requirement shall remain in effect until the ECA determines that the work product submitted to comply with directive h. above substantially complies with professional standards.
j. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state societies in auditing and accounting and Government Auditing Standards and/or OMB Circular A-133/Uniform Guidance until he has completed all of the directives included in this letter. This restriction will be communicated to those responsible for engaging CPE instructors at the AICPA and the . This requirement shall remain in effect until the ECA determines that the work product submitted to comply with directive h. above substantially complies with professional standards.
k. To be prohibited from performing peer reviews in any capacity until the directives in this letter have been completed. This prohibition will remain in effect until the ECA determines that the work product he submitted to comply with directive h. above substantially complies with professional standards. This restriction will be communicated to his peer review oversight agency.
l. That the ECA shall provide a copy of this settlement agreement to the AICPA’s Peer Review Division staff, his peer review administering entities and his firm’s peer reviewer.
m. That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.
That the ECA shall monitor his compliance with the terms of this settlement agreement and initiate an investigation where the ECA finds there has been noncompliance.